Inside Asian Gaming

February 2014 | INSIDE ASIAN GAMING 9 COVER STORY C ambodia has been one of the stars of the region over the last decade, with growth similar to that of the Chinese mainland. As of October 2013, the International Monetary Fund forecast the country’s growth at 7%, increasing to 7.2% in 2014. World Bank figures from the same month showed the country’s foreign direct investment spiking to US$1.4 billion in 2012 from $785 million the year before, with a further small increase forecast for 2013. While this looks promising on its face, investors are said to be wary due to the political climate. Tourism figures provide good news: As of November 2013, tourist arrivals had grown 18% to 3.8 million, driven primarily by travelers from Vietnam, South Korea, mainland China and Laos, the latter two recording increases of 40.1%and 67.2%, respectively.Tourism incomewas expected to grow commensurately from its 2012 total of US$2 billion. The Ministry of Tourism’s target of 4million visitors looked well within reach; amongst other factors, government and industry sources thanked direct flights and visa-free access within most of the ASEAN community. The increase in visitors from China is partly due to the increasing number of direct flights available from that country also. As a result, the government plans to double the capacities of both international airports by 2015 and build a new international airport in Phnom Penh by 2020. In Vietnam the possible legalization of gambling for locals and the subsequent development of The Grand – Ho Tram in southern Vietnam is expected to have some negative effect, however. Currently, approximately 58% of NagaWorld’s gaming revenue to June 2013 came from mass- market players, of whom one-third were Vietnamese (much of the VIP play was from Malaysian visitors). Analysts’ expectation is for some of those Vietnamese to gamble at home if it becomes legal. In addition, Cambodia still suffers from political instability, with the disputed 2013 elections affecting the gaming sector. Of course, NagaWorld remains the mainstay, with its monopoly on gaming within a 200-kilometer radius of Phnom Penh. The Hong Kong-listed parent company, Nagacorp, saw its stock price show solid growth over 2013, and the year to June saw a 20% increase in net profit based on a 15% increase in revenue. Non-gaming revenue increased in line with overall visits. NagaWorld is already substantial by regional standards and includes 660 rooms and suites, 1,700 electronic gaming machines and 170 live table games, 15 food and beverage outlets, a nightclub, a spa, retail shopping and 25,000 square meters of meeting space. But the bigger story is Naga2, which will add 1,033 rooms, 200-300 table games, 50 VIP gaming rooms, 500 EGMs, more entertainment and MICE facilities, another 18,000 square meters of retail space, a 4,000-seat theater and parking for 533 vehicles. Naga2 is due for completion in late 2015 or early 2016. Positively for the company’s prospects, there are no statutory limits on gaming capacity. Aside from NagaWorld, there are approximately 30 small casinos and slot parlors concentrated around the towns of Poipet and Pailin along the border with Thailand, where gambling is illegal, and in Bavet, bordering Vietnam. CIMB, an ASEAN-facing investment bank headquartered in Kuala Lumpur, estimates this frontier trade at 20-30% of the total market, although no one knows for sure since it operates with little or no regulation. The major player in the border market is Entertainment Gaming Asia (EGT), a distributor and lessor of machine games around Cambodia (670 of them in NagaWorld) and the Philippines. The company is a wholly owned subsidiary of Hong Kong-listedMelco International Development, headed by Lawrence Ho. The company opened its US$2.5 million Dreamworld-branded casino in Pailin in 2012 with 26 tables, two VIP rooms and 58 EGMs. In May 2013, the company opened a more elaborate $7.5 million slots- only casino in Poipet with 300 EGMs. EGT’s most recent results were patchy. Gaming and slot revenue in the third quarter of 2013 were relatively unchanged year on year at US$4.5 million and $4.1 million, respectively. Revenue from Dreamworld Poipet offset declines in other slot operations during the quarter. Revenues were on a downward trend in Pailin through 2013, dropping to US$432,000 in the third quarter from $907,000 in the second. The company attributed the difficult time to lower player traffic as it decreased the use of tour promoters. As part of a readjustment, EGM seats were increased to 88, with 30 extra semi- live multigame tables. But earlier this year the company announced that it had written off its US$2.5 million investment in Pailin and said it may pull out of the venture completely or sublet the operation. EGT’s NagaWorld operations showed US$3 million in revenue and $201 in average daily win per machine for the quarter, down from US$3.2 million and $216 year on year, primarily due to lower player traffic attributed to the national elections in the summer. The company is also looking at expanding on the Vietnamese side in the Bokor Highlands about two hours south of Phnom Penh, where EGT leases machines to Thansur Bokor Resort and Casino. Results at Thansur have been poor. A competing casino in the region, the Hà Tiên Vegas, located across the Mekong Delta from the picturesque beaches of the Vietnamese province of the same name, abruptly closed its doors in January 2013. Operated by Sanum Investments, which is having a torrid time in Laos, the casino is closed for renovations, according to the official account. CAMBODIA Waiting for Naga2 NagaWorld is to be joined this year by Naga2. Dreamworld Pailin endured a difficult year.